Regulators Knew of Dexia's Problems But Were Silenced

When a bank is allowed to collapse, the lies behind its financial statements come out of the woodwork—and Dexia, the French-Belgian mega-bank that was bailed out in 2008 and collapsed in early October, is no exception: a report by the French banking regulator surfaced. It contains the results of an investigation concluded in the summer of 2010. And it threatened to put the bank "under special supervision."

And then? Nothing. The report was buried. Until the French newspaper, Libération, obtained a copy of it.

Dexia is a big deal in Belgium where it employs 10,000 people—of a population of 11 million (in the U.S., that ratio would translate into 290,000 employees). It has over 21 million Belgian bank accounts, and its assets of $715 billion dwarf Belgium's $395 billion economy. This craziness started years ago when the community bank embarked on an acquisition spree that turned it into an outsized, overleveraged hedge fund—that paid out huge bonuses, and as we now know, lied to investors, regulators, and the public. At taxpayer's expense.

But the report shows that the regulators weren't stupid. Inspectors of the Authorité de Contrôle Prudentiel, the French banking regulator, investigated Dexia Crédit Local (DCL), the French part of Dexia, during the summer of 2010. By then, DCL had fallen below the required liquidity levels and had difficulty raising cash to cover its monthly expenses.

The report lists a number of infractions committed by both, DCL's pre-bailout management and post-bailout management. Among them:

- DCL gave false financial information to the public.

- DCL managed its portfolio of derivatives in a manner that violated regulatory provisions.

- DCL omitted or lied about important information concerning the acquisition of a portfolio of bonds and speculative holdings.

"From 2007 to 2008, financial communications of Dexia Crédit Local were evasive about the rising risks, though the CEO and other administrators knew about them. They covered the infractions and the consequent liquidity risks with silence."

The regulators also accused DCL's audit firms, Deloitte and Mazars, of closing their eyes.

The report was sent to DCL, along with a threat that the bank would be put "under special supervision." And then the hatchet was buried for some reason. It remains to be seen if the wrongdoing at the bank will ever lead to legal actions against the perpetrators.

And just how deceitful can bank management get? The Financial Times added another wrinkle: a false recapitalization! Dexia lent €1.5 billion to its two largest institutional shareholders before 2008, so that they would invest it in Dexia common stock. As a result, Dexia showed a capital increase of €1.5 billion. Inexplicably, the practice wasn't illegal at the time, though Belgian regulators noticed it.

After all this, we welcome comforting words.

"Belgian banks don't need to be recapitalized, according to the EBA," said Yves Leterme, the caretaker prime minister of the country that is still without government. The EBA, of course, is the European Banking Authority, the very same entity whose "stress test" Dexia had passed in July with flying colors.

Europe's banking and debt crisis is pitting France against Germany. And now, we finally know the real issue: German taxpayers might have to subsidize a French company. Via Greece.... German-French Fight Breaks Out Over Frigates

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They can't pay, pure and simple. They lied, the govt. lied and the EU is lying about everything to protect the bankers and their banks. Germany is being set up big time to take a very very nasty fall. They should put a moat around their banks and bail them out. Then accept the hit to the economy and reintroduce the Mark their currency. It would be better than continuing to double down because of a theory that they know is flawed.

What strikes me as odd now, we know managemen lied, stole vie bonuses and unreported transactions, cheated their depositors, cooked the books thru accounting schemes and we still "bailout" or "nationalized" which everyone now treats as a good thing. Old management still in place and looks like it's the same old stuff. This whole bank stinks of manure.

What strikes me as odd now, we know managemen lied, stole vie bonuses and unreported transactions, cheated their depositors, cooked the books thru accounting schemes and we still "bailout" or "nationalized" which everyone now treats as a good thing. Old management still in place and looks like it's the same old stuff. This whole bank stinks of manure.

lying is taught in all b-schools...b-schools attract vermin and low grade intellects....smarmy little punks who are more ambitious than their iqs...

lying is the tool of losers who can't succeed with honesty. and of course the biggest liar of them all - barack barry soetoro hussein obama is in the white house under the biggest whopper of them all - that he is a natural born us citizen....

see what LIBERTARIANISM brings? i thought all you self governing idiots weren't lured in by greed and power? looks like i was wrong.

but hey ... now that you Ayn Randian (another welfare parasite) peabrains have been disgraced and exposed for the FRAUDS that you are with your allegiance to the Chicago school of economics....you have latched on to and are DESPERATE to pervert the Austrian school.

Dexia was precisely a failure of the state to regulate based on existing laws and to respond to other moral violations that had not been foreseen/legislated. Subprime collapse in the U.S. was a similar failure.

Nah. LIBERTARIANISM would not even bother w/ a stress test. You decide where you put your money. If you are dumb enough to put it in Dexia and get savaged, you deserve it. No bailout for you. Not a penny. But it's not all negative. Your miserable demise would serve as a useful reminder of everyone else to entrust own money to self rather than a third party full of weasel words.

It's however lazy fools believing in central planning that first buying into the delusion that a central bank could mitigate bankers fractional reserve lending risk so they supported FED that has done nothing but enlarging that risk. They then bought into another delusion that a federal deposit insurance agency could also mitigate the FRL risk so they supported FDIC that has done nothing but enlarging that risk. Wanna see where Fannie / Freddie and so on have landed these fools in next? hohoho.

So at the end of the day what do you call this Great Depreflation that started in 2008 and on track to last through this whole decade? It's called "reaping what you sow" big time. I'm sure every fool believing in central planning over self-governing will have a heck of fun.

Dexia should not detract attention from examination of what is happening in the US.

Yesterday's closure of the trillion + dollar "Community Banks of Colorado", at a cost of about $225 million to the FDIC, was interesting for the details in the acquiring bank, Bank Midwest, which is a subsidiary of NBH Holdings, which was formed in 2009.

From the NBH website:

"NBH has also signed an agreement to acquire the brand name and 16 branches of Community Banks of Colorado, with an expected closing date by the end of 2011. "

it was money for the police and military so in case of bailout protests like OWS, Belgian government can get a cheap loan to beat the shit out of 99% of their citizens. Apparently Belgians learned a lot from Hitler days.

the banking scam is the heart, the kernel of the Oligarchical construct. Now the Oligarchs have no other issue, given the size of the hole in their own financial construct to fight with each other. When thieves fall out...

We are now in Sarajevo 1914 moment on the financial front. Next week we'll know if they lit the match to the powder keg in Eurozone. Then the contagion.

Always enjoy your write ups Wolf, thanks. Very informative. I wonder how much bull shit the upper management of BAC, colluding with regulators, are hiding. For the most part, we have a global banking shit show on our hands.

Every day something new bubbles up from Europe. What's next? It does seem that things are slightly worse and slightly more advanced over there. Whatever happens in Europe will likely happen here after.

No, I think the roots trace back far earlier; > 1000 years. Wasn't that about the time that scriveners started practices that evolved into fractional reserve lending?

Didn't the Rothschields really get things going @ 300 years ago? How many wars in Europe can be directly traced to financing from their banks that were enablers and proffiteers from the death of millions over time?